Alphabet: Raising Fair Value Estimate Despite Regulatory Pressure

Key Morningstar Metrics for Alphabet

• Fair Value Estimate: $209.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

We are raising our fair value estimate for Alphabet GOOGL/GOOG to $209 per share from $182 after looking anew at the firm’s overall business and raising our growth expectations for its cloud computing arm.

We view Alphabet as a conglomerate of stellar businesses. With solutions ranging from advertising to cloud computing and self-driving cars, Alphabet has become a true technology behemoth, generating tens of billions of dollars in free cash flow annually. While antitrust concerns around the core search business have made headlines, we retain our confidence in its overall strength and foresee it remaining at the forefront of many verticals, including search, AI, video, and cloud computing.

Alphabet’s core strategy is to preserve its strong advertising business, with most of its advertising revenue coming from Google Search. To that end, the firm has invested considerably over the years to improve its search capabilities, ensuring its search engine remains deeply embedded in how hundreds of millions of users access information on the web. We see the firm’s investments in AI as a continuation of this effort to safeguard Google Search. By leveraging generative AI, Google can improve both its search quality via features such as AI overviews and its advertising business by augmenting its ability to target customers with relevant ads.

We don’t foresee a material deterioration in Google’s search business resulting from governmental or judicial intervention. While there is a range of possible outcomes depending on what remedial steps are imposed on Google in the wake of the antitrust case, we think Google will likely maintain its leadership position in search and text-based advertising in the long term.